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Investing wisely is the best way to increase your net worth over time. On the other hand, investing poorly can result in a significant loss of money for you. Most financial experts recommend diversifying your investments by distributing money into a variety of assets. No matter how promising and profitable a new company might seem, it’s never wise to invest all your money in one place. Having multiple streams of income is always better than having just one, because if an investment of yours fails and you’ve got others to back it up, you can cover the losses with one of these additional investments.
While nobody can guarantee that an investment will pay off, there are basic investing dos and don’ts that everyone can benefit from. Here are the five best items to invest your money in:
1. Certificate of Deposit (CD)
If you have a specific amount of money that you know you won’t be needing for immediate expenses, invest it in a CD. When you invest money this way, you are basically loaning it to a bank or other financial institution for a set period of time. You are able to choose the amount of time you loan your money for, and typically the more money and time you allocate, the higher the interest rate you’ll earn will be. Once that set period of time is over, the financial institution will pay you back your initial investment plus the interest accrued.
Depending on where you choose to open your CD, you can deposit as little as $100 to $500 and as much as $250,000. Always make sure the financial institution where you have the CD is insured by the Federal Deposit Insurance Corp. or National Credit Union Administration, and read all applicable terms and conditions before investing your money.
2. Real Estate
Investing in real estate can be very profitable if you have a large sum of money set aside. It’s best to invest during inflationary periods, when property values depreciate and buyers can capitalize. Decide on a business plan early on and don’t invest too much in the beginning. You don’t want to overextend yourself and eventually have to snatch funds from your current savings plan.
Reevaluate your plans and goals as you gain success and experience, and don’t be afraid to ask an experienced real estate mentor for advice. Also, it’s best to learn everything you can about real estate investing before you purchase your first property.
Stocks can be tricky yet lucrative investments, and in order for you to be able to invest in them correctly, you must have a solid understanding of them and how to evaluate them. And although stock brokerage experts can prove helpful, it is essential that you use common sense and basic logic when investing in the stock market.
Since you are actually buying a company when you invest in a stock, it’s crucial to invest in a company that is making a profit. Otherwise, you are simply speculating instead of investing. The price of a stock solely depends on a company and its industry, its customer base, the economy and the current political atmosphere.
Monitoring your stocks can help you determine whether selling is the best option, particularly when the fundamentals change since the purchase. However, most investment experts recommend holding onto stocks long-term.
A bond is similar to an IOU, except that with it you are lending money to a government, corporation, federal agency or other issuer. In return for your money, the issuer gives you a bond that promises to pay a specified interest rate during the life of the bond. When a bond matures, its face value is also repaid by the issuer.
Since bonds typically pay interest semiannually, they provide a predictable stream of income for investors. You can invest in individual bonds, bond funds or unit investment trusts. Investing in bonds does entail risk, and investors should not assume that bonds offering a higher rate of interest or return are best. The minimal investment with bonds is typically $1,000 to $5,000, depending on the type of bond you are purchasing.
5. 401(k) Retirement Plan
Setting aside money every month in a 401(k) retirement account will help you build a nest egg for the future. It’s best to start investing in a retirement plan in your 20s because the longer your money has to accrue, the more money you’ll have for retirement.
When you open a retirement account, you can fund it with any investments you choose — stocks, bonds, etc. — without getting taxed on the annual earnings of those investments. You can choose how much money to set aside for your 401(k), but most financial experts recommend setting aside 10 percent of your paycheck. A big advantage of a 401(k) is that many employers match you dollar for dollar on the first 5 percent of your salary contribution.